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Incorporating in Utah: What is an S Corporation?

by Norris Law Group on October 21, 2014

In our previous post, we defined Utah business corporations and discussed the aspects of setting them up. But a business corporation is by no means the only kind of corporation that Utah business owners establish. The Utah Governor’s Office of Economic Development goes over the options for incorporating in Utah in a free online guide titled How to Do Business in Utah.

In addition to business corporations, Utah also recognizes a business structure known as an S corporation. According How to Do Business in Utah, an “S corporation combines parts of the corporate and partnership forms of business organization.” The IRS allows privately held corporations with up to 35 shareholders to avoid corporate taxes if each shareholder reports his or her share of the corporate profits on personal federal tax returns. In that way, S corporations do not pay taxes. But “excess passive net income” or “tax on certain capital gains” may be assessed under some circumstances.

S corporations are viewed as corporate entities by the state of Utah, and must comply with all state regulations. Other criteria that must be met by S corporations include (but are not limited to):

only offering one class of stock;

using either a calendar year or a fiscal year for tax purposes;

all shareholders must agree to S corporation status;

shareholders may be individuals, trusts or estates (but not other corporations);

can only have shareholders that are US citizens or legal residents; and

may not be a member of any affiliated group of corporations.

Like business corporations, S corporations are relatively easy to set up from a legal standpoint. But they also carry a series of regulations that must be followed. A conversation with an attorney experienced in setting up corporations in Utah can help you determine whether an S corporation is the right structure for your business.

Attorney Graham Norris and his associates at the Norris Law Group serve the residents of Utah County, UT and throughout Utah, Wyoming and Idaho. Contact them today at 801-932-1238 or online for a free consultation.

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